Thinking through the current crisis

Published Tue 28 Oct 2008

Issue No. 2125

There have been a flood of pieces in the international press recently about how the financial crash has meant Karl Marx and John Maynard Keynes – reduced to intellectual pariahs in the heyday of neoliberalism – are back in fashion.

But if these great names are more than symbols, their ideas need to be put to use in understanding the global economic crisis. One particular puzzle arises from the fact that it began in the financial markets. Does that mean that it is a crisis of these markets, rather than of the capitalist system as a whole?

This is one of the main points at issue between Marx and Keynes. Both argued that capitalist economies are inherently unstable, but Keynes believed that the instability was focused in the financial markets and their propensity to inflate speculative bubbles that inevitably burst, causing deep economic slumps.

For Marx, by contrast, the ultimate source of crises lay in capitalism as a system of production. In particular, the competitive struggle among rival firms leads investment to rise more rapidly than profits, causing the rate of profit to fall.

The speakers at a packed conference on Marxism and the economic crisis, organised at very short notice by International Socialism journal last Saturday, sided with Marx rather than Keynes.

They provided copious evidence that capitalism has been struggling with a long term crisis of profitability since the late 1960s.

One speaker lambasted mainstream economists for ignoring this crisis, asking what would happen to the engineering profession if all the bridges in the world suddenly collapsed. There was also agreement that, even if the roots of the present crisis lay deeper than the financial markets, we needed to understand the latter’s role in precipitating it.

Chris Harman argued that the huge bubble of speculation had its source in how, at the start of the present decade, the US Federal Reserve Board and other central banks had flooded the world economy with cheap credit in order to encourage firms and households to keep spending.

Cheap credit

In the second session Robin Blackburn and Jacob Middleton explored the ways in which banks had used this cheap credit to engage in ever more complicated forms of speculation, till the whole structure began to collapse in the first half of 2007.

The final session, introduced by Peter Gowan and myself, was devoted to the implications of the crisis for the system of states. Gowan identified two sets of international credit relations.

The first binds together the Atlantic world – the US and the European Union (EU) – and the Global South. Since the early 1980s the foreign debt of Third World states has been used to force their economies open to the transnational corporations.

The second connects the US and the capitalisms of East Asia, the most dynamic sector of the world economy. Here the boot is on the other foot. China and Japan earn dollars from exporting manufactured goods to the US, which they then lend back to the US government.

I argued that the effect of the crisis would be to weaken the US – partly because it will have to borrow even more abroad to finance the bailout of the banking system – but that it would still remain the strongest state in the system.

No rival is currently in a position to supplant it. The crisis has exposed the EU as a shambles and it is hitting Russia hard. China is still too underdeveloped economically to challenge the US.

Gowan thought I was underestimating the pace of China’s development and the capabilities of its state managers. But we agreed that the broad outcome of the crisis would be greater political instability, as US imperialism struggles to manage a world slipping out of its control.

All the speakers were also agreed that the present crisis represents both a challenge and an opportunity to the anti-capitalist left. The collapse of neoliberalism amid large scale bank nationalisations means that socialist alternatives can no longer be dismissed out of hand. It’s up to us to make these alternatives credible to growing numbers of people.

The latest issue of the International Socialism journal contains further analysis of the crisis – go to www.isj.org.uk for details of how to order it